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Health Exchanges Not Built To Last? CBO Sees '18 Peak

After 2018, ObamaCare exchanges will be all downhill.

At least that's how it looks to the Congressional Budget Office. Its projections imply that the number of people getting subsidized coverage will ramp up from the 2014 start to peak at 22.3 million in 2018, but then fall by 1.8 million over the next five years.

The ObamaCare exchange exodus would result from subsidies covering a smaller share of premiums over time, leading more people to go without insurance and, in many cases, pay a tax penalty.

Considering that enrollment in Medicare and Medicaid remains on an upward path as those programs approach their 50th birthdays, this ever-shrinking future for ObamaCare may seem surprising — even to the law's crafters — and perhaps unlikely.

'Difficult to Sustain'

CBO director Doug Elmendorf warned in 2011 that ObamaCare's gradual shift of coverage costs to enrollees "may be difficult to sustain" and threw out the possibility that Congress would "adjust the subsidy schedule.

At the time, CBO still envisioned that the subsidized exchange pool would continue growing over the next decade, despite slower subsidy growth.

CBO's new 10-year outlook presents a more troubling picture and provides the clearest warning yet that the 2010 health law is not built to last as structured.

CBO projections now not only imply that the subsidized exchange pool will shrink more precipitously, but the average benefit will rise 5.7% a year — faster than the 5% seen last August.

This combination of fewer beneficiaries and faster benefit growth implies that low-income and older beneficiaries will make up an increasing share of the insurance pool. ObamaCare subsidies rise with age and decline as incomes rise; falling to zero for households who earn more than 400% of the poverty level.

A faster projected rise in average premiums suggests younger, healthier individuals and families will increasingly decide to go without insurance, with many paying a tax penalty.

While the Supreme Court ruling that states needn't expand Medicaid will likely shift millions of currently uninsured to the exchanges, it doesn't explain the projected enrollment decline.

The exchanges' declining future is largely tied to a little-understood last-minute cost-control inserted to make ObamaCare seem more fiscally responsible. It kicks in after 2018 if exchange subsidies top 0.5% of GDP — as CBO estimates show they surely will.

Health policy experts first interpreted the provision to mean that premium subsidies would only grow with overall inflation, well below health cost inflation. The reality, clarified by CBO in 2011, is much different.

For lower-income and older households for whom ObamaCare would cover the bulk of premiums, subsidies would continue to grow faster than inflation.

For younger and higher-income households, ObamaCare subsidies could begin to shrink outright, as IBD has reported.

With premium payments growing far faster than income, out-of-pocket costs would soon dwarf the mandate tax penalty capped at 2.5% of income.

CBO's new forecasts suggest more healthy people will opt not to pay an ever-growing chunk of their income, when they can pay a smaller fine and still get the same coverage at a fixed price when they need it, perhaps with a several months delay.

More people who skip coverage will be exempt from the mandate because minimum coverage exceeds the law's affordability threshold, the CBO noted.

Immigration reform could significantly alter ObamaCare's subsidized population, perhaps adding several million beneficiaries. But it's not clear that this would alleviate any of the law's structural flaws that will drive many people from the exchanges.